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Perseverance Triumphs Over IRS

BY James C. Miller III

06/21/2000

by James C. Miller III on 6/21/00.

Call it another profile in courage. A citizen stands up to political assaults and government intimidation, pays a tremendous price, but is vindicated. That citizen is Jeff Eisenach, and his story needs to be told.

After serving the Reagan administration with distinction (during which he took time off to get a Ph.D. in economics at the University of Virginia), Mr. Eisenach aided Pete du Pont in his presidential effort, and then became a friend and confidant of former House Speaker Newt Gingrich, eventually serving as executive director of GOPAC, the well-known Republican political training organization. In 1993, he left GOPAC and, together with former Reagan Science Adviser Jay Keyworth, established the Progress and Freedom Foundation (PFF) to study the relationship between liberty and technological advance.

PFF's relationship with Mr. Gingrich made the organization a natural target. It wasn't long before critics were drawing a bead on Renewing American Civilization, the college course Mr. Gingrich taught from 1993 to 1995 and which PFF facilitated by helping with research and distributing materials to the two dozen or so colleges and universities that offered the course for credit. Mr. Gingrich's opponents began attacking the course in 1993, before he had even given the first lecture, but it wasn't until June 1995 that the Baltimore office of the Internal Revenue Service assaulted PFF.

Mr. Eisenach's initial response to their inquiries was what he called "aggressive cooperation," and by September he had provided the IRS with everything its agents had requested and more. Confident that PFF had done nothing wrong - indeed, PFF's involvement in the course had been approved by some of the most venerable tax lawyers in town - Mr. Eisenach looked forward to a full exoneration.

That was not to be. Instead of closing the investigation, the IRS decided to go public. Prohibited by law from disclosing directly even the existence of an investigation, the agents threatened to achieve the same result by "interviewing " such "witnesses" as vocal Gingrich critic Rep. David Bonior, Michigan Democrat, and former Gingrich congressional opponent Ben Jones. The IRS made no pretense that either Mr. Bonior or Mr. Jones had any original information about the issues it was auditing, nor was it coy about the rationale behind its strategy.

Asked why the agency was investigating PFF, one of the agents was surprisingly frank. "Some animals," he said, "are more equal than others." On the other hand, the agents said PFF could avoid all this by simply admitting wrongdoing, giving up its tax-exempt status, and paying substantial penalties - in other words, pleading guilty and welcoming capital punishment. Mr. Eisenach 's response was that PFF had not violated a single tax law or regulation, and was not going to admit otherwise.

Rebuffed, the IRS changed tactics. In 1996, it hit PFF with a "mega" demand for documents. It declared its audit of tiny PFF to be under its "Comprehensive Examination Program," a process usually reserved for major hospitals and university systems, and which might be described as "autopsy without benefit of death." Then, to the astonishment of practically everyone, the agents demanded responses to a questionnaire in which board members and their spouses were to report every detail of their political affiliations and activities. PFF continued its policy of "aggressive cooperation" on the document demands, and even handed over copies of board members' biographies, but as for the outrageous invasion of privacy posed by the questionnaire, Mr. Eisenach told the IRS to go to hell.

The IRS wasn't even Mr. Eisenach's biggest problem in 1996. By then the "politics of personal destruction" was in full swing, and a second battle front opened on PFF. The House Ethics Committee appointed Special Counsel James Cole to investigate Mr. Gingrich's involvement with the course, and Mr. Cole seemed determined to find wrongdoing whether any existed or not.

A former prosecutor with no experience in tax law, Mr. Cole concocted a theory that seemed designed to put Mr. Gingrich - and Mr. Eisenach - behind bars for tax fraud. Mr. Gingrich's attorneys, in the meantime, were making the situation worse by filing statements with the Ethics Committee that, though ultimately irrelevant, were false. Meanwhile, Mr. Cole made demand upon demand on PFF for documents and affidavits.

For Mr. Eisenach, those were frightening days. PFF was suffering badly from the costs and distractions of two simultaneous investigations. Fund-raising was off by 50 percent. During summer 1996, the staff was cut in half, but the debts continued to pile up. By the end of 1996, it wasn't clear that PFF would survive.

In January 1997, Mr. Cole issued a report to the House Committee alleging "clear violations" of the tax laws. Wisely, the committee demurred on this issue and deferred to the IRS investigation, which went forward throughout 1997 and into 1998. Mr. Eisenach kept his back straight and let his hair grow (literally). Cooperation with the IRS in their investigation was one thing. Admitting a violation of law when none had occurred was quite another.

In early 1998, the parties engaged in settlement negotiations. The suggestion was made that PFF give up its tax status retroactively and pay substantial penalties, but be allowed to apply for a new tax exemption going forward. It seemed a relatively painless way out, but after discussions with his board Mr. Eisenach refused, saying, "We haven't done anything wrong." Finally, in July 1998, exasperated with Mr. Eisenach's refusal to cave and apparently doubtful of the legal merits of its case, the Baltimore office kicked the matter upstairs, asking the national office for a "technical advice memorandum."

A few months later, the ordeal came to an end. In a 74-page opinion - the longest ever issued about a tax-exempt organization - the IRS national office gave PFF a clean bill of health. With respect to the Gingrich course, the office concluded that the Foundation's activities "were broadly funded, were consistent with its stated exempt purposes, were scholarly in nature, and were distributed broadly and/ or taught in general-curriculum colleges and universities."

Specifically, the IRS found that the course content was educational, substantive and not biased toward any political point of view. The opinion even quoted Mr. Eisenach: "The case was about whether a political leader can, in the 1990s, undertake to develop a set of ideas within an academic framework and, having done so, advocate those ideas in his political life."

This case was about something else as well: a principled individual's willingness to stand up against the power and persistence of a misguided state. For those who value freedom and want to protect it, they have the example of Jeff Eisenach.

James C. Miller III is counselor to Citizens for a Sound Economy and is a board member of the Progress and Freedom Foundation.